Public Bill Committee



(Morning)

[Mr. Roger Galein the Chair]

(Except clauses 1, 3, 7, 8, 12, 20, 21, 25, 67 and 81 to 84, schedules 1, 18, 22 and 23, and new clauses relating to microgeneration) - Clause 17

Corporation tax deduction for expenditure on energy-saving items

Question proposed, That the clause stand part of the Bill.

Roger Gale: With this we may discuss clause 18 stand part.

Paul Goodman: Welcome to the Chair, Mr. Gale. The clause marks the beginning of the part of the Bill that deals with the environment. It is progress to have such a part, given that there was no similar part in last year’s Finance Bill.
 By way of introduction, I shall point out that my hon. Friends and I have done some research and discovered that in last year’s Budget alone, the Chancellor mentioned climate change no fewer than 15 times, whereas in the Budget and pre-Budget statements between 1997 and the autumn of 2005, he mentioned it on average only once. I shall leave it to the Committee to work out what stimulated his interest in the environment, and what might have happened in the autumn of 2005 to awaken that interest.

Stephen Timms: Will the hon. Gentleman confirm that, under the Governments of the party that he represents, the Budget documentation never included an environment chapter? Our documentation has consistently done so since 1999.

Paul Goodman: I can confirm that carbon emissions have risen since 1997. I am afraid that I have to disappoint the Chief Secretary by saying that my research has been less rigorous than his; I have not sat back and looked at every Bill that was issued in every year since 1979. I should want to check his claim closely, as we always want to examine with great care claims that are made by the Treasury.

David Gauke: Will my hon. Friend confirm that, during the Chancellor of the Exchequer’s period in office, not only has climate not featured heavily in Bills and Red Books, but green taxes, as a proportion of taxation as a whole, have fallen?

Paul Goodman: I can confirm that. Green taxes represented 9.4 per cent. of receipts in 1997; that figure has slid to 7.7 per cent.

Brooks Newmark: The Chief Secretary gave 1999 as the critical year in which green issues suddenly became important for his Department. I note that since 1999, 15 Departments have increased their carbon emissions. What does that say about the Government’s green strategy?

Paul Goodman: I am grateful to my hon. Friend. I assume that he refers to the Sustainable Development Commission’s finding that said exactly that.

David Gauke: Will my hon. Friend also accept that although 15 Departments have increased their carbon emissions since 1999, of all Departments the Treasury has the third highest carbon dioxide emissions per person from air travel?

Roger Gale: Order. It has taken me 24 years to work out that Parliament is a reasonably party political place. I would be awfully grateful if we could discuss the clause under debate.

Paul Goodman: I shall not respond to my hon. Friend’s question, Mr. Gale, although I was prepared to do so. I shall instead turn to clause 17, which, by amending the Income and Corporation Taxes Act 1988, seeks to extend to corporate landlords the availability of the landlord energy savings allowance. Proposed new section 31ZC sets out regulatory powers associated with the earlier provisions of the clause. How many corporate landlords does the Chief Secretary expect to install energy-saving devices as a result of the clause? What does he expect total carbon saving to be?

Julia Goldsworthy: I shall be brief in dealing with clauses 17 and 18. The hon. Gentleman was right: this is the first time that we have seen part of a Finance Bill deal specifically with the environment. That is slightly confusing, as we have just discussed some environmental clauses under the previous part.
Clauses 17(5) and (6) specify the definition of an energy-saving item and stipulate that such items will be defined by regulation. I am not sure that I have seen the regulations; will the Chief Secretary provide some detail of exactly what kind of items those will be? Will they refer just to electricity, or will they include items like ground source heat pumps, the development of which is making great strides in my constituency? I also note at the bottom of page 11 in the proposed new section 31ZB(3) that expenditure relating to holiday lets has been excluded. Can he explain why that is the case? Surely, we want to encourage greater energy efficiency in all properties, and not limit that process. Finally, I would like to know what the projected cost to the Exchequer of these measures will be, and what the Chief Secretary expects take-up to be in terms of the number of properties that will respond to these incentives to improve energy efficiency.

Brooks Newmark: I welcome clause 17, because it begins to deliver on the Treasury’s promise of fiscal incentives for energy efficiency. Although I am sad to see that the hon. Member for Wolverhampton, South-West is not here, I saw in the explanatory notes that the measure is an attempt to standardise corporation tax reliefs with an existing income tax relief. The explanatory notes state:
“A similar deduction...is currently available for landlords who pay income tax.”
I also welcome that principle, if only because the clash between the two regimes has caused so many problems elsewhere in our Finance Bills over the past few years.
I have a few questions about the details, which I hope that the Chief Secretary can answer. My first question is whether there is any need for new section 31ZA(5), regarding the definition of an “energy-saving item”. If the aim here is to achieve harmony between the income tax and corporation tax regimes, why is it not possible to use the existing regulations that were made for the purpose of income tax deduction? I do not want to stray into the territory of the next clause, but we have had some recent regulations, a copy of which I have here, that define what an energy-saving item is for the purposes of income tax deductions under section 312 of the Income Tax (Trading and Other Income) Act 2005. The Energy-Saving Items Regulations 2007 were laid before the House on 14 March and came into force on 6 April. They define energy-saving items as
“(a) hot water system insulation;
(b) draught proofing;
(c) solid wall insulation; and
(d) floor insulation.”
They also prescribe limits on expenditure.
 If the idea is to achieve harmony between the deductions possible under the Income and Corporation TaxesAct 1988 and the Income Tax (Trading and Other Income) Act 2005, I must ask the Chief Secretary whether it is not possible to use a common definition of an energy-saving item, and if possible the same regulations.
Proposed new section 31ZA(7) seems to imply a wide range of possible conditions, which may be imposed upon the definition of an energy-saving item. I hope that the Treasury does not intend to develop a definition of an energy-saving item that is so specific that no one can make use of the relief. The list given in the Energy-Saving Items Regulations 2007 is hardly exhaustive, and I hope that the Treasury is not signalling that it is going to become any shorter. If this relief is to be useful and not another of the Chancellor’s gimmicks, it will be helpful if the Chief Secretary could offer the Committee some idea of what will be covered by the proposed definition, and whether that definition will be based on the existing regulations.
My second question concerns restrictions on the use of the relief, particularly that it is not applicable if a house is in the course of construction. I would have thought that the best time to make the relief available is during the acquisition and construction phase; I see the Chief Secretary nod there. It is at that point that the availability of a deduction is best able to influence commercial decisions about whether to proceed with energy-saving measures.
The Government seem to be establishing a false dichotomy between businesses that improve the energy efficiency of an existing building and those that elect to improve the specification of a prospective building. I am sure that there is some logic in that distinction and I would be grateful for the Chief Secretary’s explanation.
My third point concerns the restriction in proposed new section 31ZB(5), which restricts any deduction in respect of expenditure which
“is not for the benefit of a dwelling house.”
That seems very nebulous and the Chief Secretary may be able to put my mind at ease by providing the appropriate legal definition. As it stands, I can think of a number of possible disputes arising over whether an energy-saving item has been installed to the benefit of a dwelling house or for another commercial purpose. The scenario I am thinking of is tied accommodation in which there is very little differentiation between residential and commercial premises, such as a pub.
If a pub landlord were to install some energy-saving technology, even choosing from the very modest list in the current regulations, would he be benefiting his dwelling or his commercial premises? Presumably both to some extent, but does that mean that no deduction is allowed at all or that the benefit should be apportioned out in some way or another? My concern with the whole of the clause is that its intentions are positive, but its details risk producing a deduction that is so specific or so complex that nobody bothers to use it. I should like to see the clause put to good effect by business, rather than providing another two pages of primary legislation and yet another set of regulations.

Kitty Ussher: I rise briefly to express my support for the clause. Obviously its purpose is to address the market failure that exists because landlords have a disincentive to invest in energy efficiency in their properties because the benefits of the investment flow to the tenant so they cannot get a return on it. The clause would correct that by giving a direct financial return to the landlord. I should like to explore the parallels between this clause and the clauses relating to microgeneration that we discussed late one evening on the Floor of the House. Those clauses give individuals exemption from income tax on income from any surplus electricity generated from installing solar panels and wind turbines, perhaps we should consider a similar provision for landlords. For a landlord there is also, presumably, a market failure to invest in microgeneration, solar panels, wind turbines and so on because he would not be the one to benefit from selling the surplus energy back. Surely, the microgeneration clauses should also be extended to landlords. Perhaps the Chief Secretary can clarify that point.

Stephen Timms: Good morning, Mr. Gale. I welcome you back to the Chair. Let me briefly repeat the point that I made in an intervention. The Chancellor introduced in the Budget documentation for the first time an environmental chapter and it has been in each pre-Budget report and Budget Red Book since 1999. Before that we published a statement of intent on environmental taxation in July 1997. I will not go further down that road, Mr. Gale, given your wholly proper strictures to Opposition Members earlier on.
 I want to comment on clauses 17 and 18 as they are grouped together on the selection list. About one third of the UK’s carbon emissions come from residential properties. We have therefore introduced, not as the hon. Member for Wycombe suggested this first measure, but a series of measures to encourage household energy efficiency. For example, energy efficiency measures professionally installed in residential properties now qualify for a reduced rate of VAT. The energy efficiency commitment provides incentives under which energy suppliers are installing a range of energy efficiency measures in residential properties. By 2010, in combination with initiatives introduced as part of the warm front scheme, that will reduce carbon dioxide emissions by more than 2 million tonnes per year.
The Government have also set out our ambition that, by 2016, all new homes will be zero carbon. We will shortly come to a clause that introduces a stamp duty exemption for zero-carbon homes. However, action targeted specifically at the rented residential sector is needed, since such properties typically produce about 500 kg more carbon dioxide a year than other homes. There is an obvious incentive for home owners to improve the energy efficiency of their homes, but, as my hon. Friend the Member for Burnley said, that does not apply in the case of rented properties, hence the need for this measure.
In the 2004 Budget, we introduced the landlords energy saving allowance—LESA—which allows private landlords to deduct the cost of installing loft and cavity wall insulation from their taxable profits. Since then it has been extended to include solid wall and hot water system insulation, and draught-proofing.
We have explored the options for a green landlord scheme in some depth. An option that we discussed in the past was to reform the wear-and-tear allowance, linking it to the energy efficiency of a property but, having fully investigated the practicalities, we concluded that LESA provided a more cost-effective and better targeted way to encourage improvements in the energy efficiency of privately rented properties.
LESA has been successful in encouraging investment: landlords spent more than £1.3 million on energy efficiency improvements to rented properties in its first year. The Energy Saving Trust and the Energy Efficiency Partnership for Homes are also doing good work in encouraging landlords to improve energy efficiency in their properties. Building on that progress, we announced several extensions to LESA in the pre-Budget report last year to ensure that its scope and coverage are as comprehensive as possible. Those extensions are expected to reduce carbon emissions by up to two thirds of a million tonnes a year by 2011.
LESA is at present available only to private landlords subject to income tax, and clause 17 extends it to landlords in the corporate sector. Corporate landlords own about a quarter of all properties in the residential rental sector, so that is a very significant widening of access to the allowance. As a Government support to businesses, the extension requires state aid approval from the European Commission before it can be implemented and we will be shortly be submitting notification of this aspect of the LESA and seeking approval.
The clause also gives powers to the Treasury to change the level of allowance available to ensure that the allowance operates fairly in all situations and to specify the types of energy-saving items covered. I will return to that matter in a moment.
We will lay regulations introducing the same conditions for corporation tax that are already in place under the existing allowance for income tax, and the regulations will set the maximum deduction available at £1,500 per property per year and provide for that deduction to be apportioned in cases of joint ownership. A draft of the regulations has been provided for the Committee and I hope that all members will have seen it.

Paul Goodman: Will the Chief Secretary say when the regulations were sent to the Committee, as I have no recollection of receiving them? If he cannot answer my question now, perhaps he will do so in due course.

Stephen Timms: I do not have the date in front of me but I will check it. I hope to be able to respond to the hon. Gentleman in a moment.
Corporate landlords will be able to deduct the cost of acquiring and installing solid wall, cavity wall and loft, floor and hot water system insulation, and draught-proofing.
Extensions to LESA for non-corporate landlords, who already benefit from the original LESA, aremade for income tax in clause 18 to match those in clause 17 for corporation tax, and represent a further incentive for landlords to increase the energy efficiency of their properties. Clause 18 extends LESA by making the allowance that is currently set to end in 2009 available until 2015.
 From 2008, energy performance certificates will be introduced in the private rented sector for every home bought, sold and let in the UK. Those certificates will highlight to landlords and tenants the existing energy efficiency of properties, as well as suggesting affordable ways to improve them. Setting 2015 as the date strikes a good balance between giving landlords enough time to take advantage of the allowance and encouraging them to take steps to improve the energy efficiency of their properties as soon as possible. The extension of the allowance by six years gives them time to take full advantage of the extended allowance and to benefit from the information provided by energy performance certificates.
Secondly, the clause ensures that the LESA is available for expenditure on increasing the energy efficiency of communal areas within properties, providing an incentive to improve the energy efficiency of the whole building. We have already, through secondary legislation, made the allowance available for expenditure on floor insulation, changing the maximum annual deduction available from £1,500 per building to £1,500 per property. That means that for a landlord who owns and lets a block of 10 flats, the maximum deduction available per flat is increased from £150 to £1,500. I hope that the Committee has seen the draft of the regulations that we intend to lay afterthe Bill receives Royal Assent. They ensure that the maximum annual deduction of £1,500 will continue to operate correctly for expenditure on communal areas.
Let me respond to some of the points that have been raised in our brief debate. The hon. Member for Falmouth and Camborne asked a fair question about furnished holiday accommodation. We have thought carefully about that, and the evidence is that there is not the same market failure in the case of furnished holiday lettings that there is in the private rented sector more generally. For example, it is common for owners of furnished holiday accommodation to live in their properties for part of the year, so they will benefit directly from energy efficiency improvements.
In any case, the commercial letting of furnished holiday accommodation is treated more favourably for tax purposes from other rental businesses. That suggests that it would not be right to provide the LESA for furnished holiday accommodation. However, it is a fair point that we ought to keep under review arrangements to encourage the right level of energy efficiency in furnished holiday accommodation. If it is appropriate at some point to introduce fiscal incentives for that purpose, we will be open to doing so.
We expect the cost of the extensions to be up to£10 million per year. That is set out in table 1.2 of last week’s pre-Budget report documentation. The things that will count as energy-saving items in the regulations will be those that I have listed: floor insulation, loft insulation, cavity wall insulation, solid wall insulation, draught-proofing and hot water system insulation.
The hon. Member for Braintree asked why we did not make the incentive available for a dwelling under construction. The answer is that, as a result of recent changes, building regulations require new properties to be built to a high standard of energy efficiency. As a regulatory requirement already exists, making the LESA available would cost the taxpayer money but would not have a beneficial effect. The aim of the LESA is to target a market failure where there is no requirement, as in the case of existing privately rented properties, for energy efficiency measures to be taken.
Finally, the hon. Member for Braintree also asked why we needed separate regulations for income tax and corporation tax. It is because they are covered by two different Acts, so it is necessary for there to be two separate sets of regulations. Indeed, they will take effect on different dates. However, I can reassure him that the definition of energy saving items will be the same for both income tax and corporation tax. I hope that that will be of some comfort to him.

Question put and agreed to.

Clause 17 ordered to stand part of the Bill.

Clause 18 ordered to stand part of the Bill.

Clause 19

SDLT relief for new zero-carbon homes

Question proposed, That the clause stand part of the Bill.

Paul Goodman: This clause covers relief for new zero-carbon homes and as you know, Mr. Gale, Friends of the Earth and the National Landlords Association do not always find cause to unite them, but this clause seems to have done the trick. Friends of the Earth said that it would affect
“a tiny number of new properties”,
while the National Landlords Association said that
“the impact of the tax break is likely to be relatively limited.”
Clearly, they agree on that. I am sure that both organisations, none the less, welcome the proposal, which we will not be opposing. However, their reaction suggests some useful lines of inquiry.
The clause empowers the Treasury to make regulations granting relief on zero-carbon homes, which may take the form of an exemption from charge or a reduction in the amount of tax chargeable. As the House of Commons Library points out—I went to the Library to see what it had to say—
“the budget report itself does not give an estimate, stating the Exchequer impact to be ‘negligible’. Item A.90 in the budget measures shows the cost as...less than £3 million a year”.
This is what the Red Book describes as a relief to
“kick-start the market for new highly efficient technologies in homes.”
The Library also says that
“at this stage it is difficult to estimate how many homes would qualify for the tax relief, and much will depend on the projected number of new homes that may be built during the qualifying period.. .at this stage there does not appear to be any reliable estimate or figure of the likely number of houses to be covered and how much this will cost the Government until 2012”.
That is the Library’s assessment.
So it is not at once apparent how this welcome but modest measure can accurately be described as “likely to kick-start” a market, or how exactly it will make a substantial contribution towards the Chancellor’s goal announced last weekend of five eco-towns, containing 100,000 carbon-neutral homes.
 When I say “announced”, of course I mean“re-announced”, since that goal was first announced, according to my researches, by the Minister for Housing and Planning almost exactly a year ago, on 17 May 2006. [Hon. Members: “Hear, hear.”] I hear Government Members say “Hear, hear” but I was about to go on to remark that the process of passing this information on to the Economic Secretary, with whom I believe the Minister in question is acquainted, and then for him to pass the information on to the Chancellor, with whom he is also acquainted—though not, of course, in the same way—has taken the best part of the year.
 When I say “re-announced”, I mean, of course,“re-announced and slightly modified”, since the Housing Minister’s original speech, as the Economic Secretary will know, referred to 120,000 homes, not 100,000, so there has been a net loss of 20,000 homes. When I say “re-announced”, I mean, “re-re-announced”, since the Government apparently announced that they would build seven new eco-communities, with 9,000 new homes 10 years ago, and have to date built only one in 10 of those homes.
A number of questions obviously follow. First, how many zero-carbon homes exist at present? The Chief Secretary told the shadow Chief Secretary, my hon. Friend the Member for Chipping Barnet, in the Chamber that the answer is “a very small number”. He was a bit more forthcoming on “Newsnight”, when he told Jeremy Paxman that the answer is
“I think a couple of dozen”.
I will spare the Committee the whole exchange, because it makes for painful reading. However, because it is obviously unsatisfactory for “Newsnight” to have the precise figure when the House does not have it, we are confident that the Chief Secretary will respond appropriately.
Secondly, what estimate has the Treasury made of the number of additional zero-carbon homes that it expects to be in place by 2012 as a result of this measure? Thirdly, what estimate has the Treasury made of the number of zero-carbon homes that it expects to qualify for this tax relief? What proportion does it expect to be exempted from charging altogether?
Fourthly, can the Minister give us an idea where these homes are expected to be built and which local authorities have expressed an interest in seeing them built? The Chief Secretary said on Second Reading:
“a development of zero-carbon homes is going forward at Gallions Park in my constituency.”—[Official Report, 23 April 2007; Vol. 459, c. 661.]
Can the Economic Secretary confirm that, as common sense would suggest, “going forward” means that planning permission for these homes has been given? Fifthly, what carbon saving does the Treasury expect as a result of the measure? Finally, does the estimate in the table contribute to the cost of the five eco-towns and 100,000 zero-carbon homes and where in the Red Book are those costs covered?
The clause gives rise to a number of more specific questions as its main effect is to give the Treasury the power to make regulations granting relief on zero-carbon homes. Picking up on an exchange on the last clause, I may be at fault but I am not aware of having seen the regulations that will offer a definition of zero-carbon homes, that may extend the relevant tax concessions beyond 2012, that may set up a process of certification under the home information pack regime which could affect take-up, and that may, although not necessarily, provide for relief to be withheld where a person acquires more than one zero-carbon home within a specified period. Obviously those are important regulations. If they have not been published, when will they be published?
Can the Economic Secretary tell the Committee whether the definition of zero-carbon home will include carbon emitted during construction or in the manufacture of building materials? What evidence on the carbon neutrality of their homes will people be required to provide and through what process will they do so? Above all, can he guarantee that the House will get the opportunity to debate the regulations which, by their nature, will be unamendable under the affirmative procedure?
Finally, may I offer some good news? Speaking of acquaintances of the Economic Secretary, the hon. Member for Morley and Rothwell (Colin Challen)—the future Lord Challen, as my colleagues insist on calling him—is on the case. I received from him only yesterday an invitation to a meeting entitled “Zero-carbon homes: how we can meet housing costs and protect the environment.” His letter begins: “Dear Helen Goodman”. I look forward to the Chief Secretary’s response.

Roger Gale: Before we proceed, I am slightly concerned by the hon. Gentleman’s remark that he has not had sight of the regulations. I was under the impression that copies had been mailed out to all members. My co-Chairman and I have received them. If they have not been made available, are they available on the table? If not, why not, and could all Members on both sides of the Committee have them as swiftly as possible?

Edward Balls: On a point of order, Mr. Gale. I told the hon. Gentleman at the end of last week that we would send him the draft regulations. As I understand it they were mailed out at the end of last week. If hon. Members have not received them, I apologise, but I had them mailed out at the end of last week.

Theresa Villiers: Further to that point of order, Mr. Gale. I was sent a copy of the letter that was sent to you, which I received this morning. I understand that my office was forwarding it on to my hon. Friend. The error may lie with me rather than the Minister. If so, I apologise.

Roger Gale: I will respond to the points of order. It would appear that my co-Chairman and I have received the documents. While I am grateful for them, I am concerned that they do not appear to have been made available to all hon. Members. Perhaps the Minister could ask his officials if they would be kind enough to run off copies immediately and have them distributed to all members of the Committee, so that everyone on both sides has the same information as I have before me.

Julia Goldsworthy: The regulations may have arrived with my mail this morning, but it had not been processed by the time I arrived here today. They may be sitting in my in-tray, but I have not had a chance to look at them yet. In any event, there was hardly a huge amount of time to scrutinise them before the debate.
As the hon. Member for Wycombe said, we do not know what impact clause 19 will have on Treasury revenues. My key concern is that although it will provide a demand-side incentive for people to purchase new zero-carbon homes, there will not be a similar incentive for builders to build them. That lack of symmetry may mean that demand will not be met, thus there will be no opportunity to take advantage of the tax incentive.
Given that the announcement was made in the pre-Budget report, I wonder if there have been any applications since then for zero-carbon homes. Proposed new section 58B(5) states:
“The relief may take the form of—
(a) exemption from charge, or
(b) a reduction in the amount of tax chargeable.”
Do I take it that it depends on the price of the property—that if it is above the £500,000 threshold it will result in a reduction, but if it is below that threshold it will result in an exemption? Exactly how will the measure operate? Will the Economic Secretary explain why it should apply only to the first time that the new building is sold? Why are not the Government extending it to future sales, as that will clearly have an impact on the price?
I mentioned regulations, but my concerns revolve around the impact that the proposal will have on affordable housing. A couple of years ago, there was a high-profile demonstration in my constituency of a zero-carbon house, a BedZED property, that could be built for less than £70,000, which still puts it out of reach for people on an average household income, which in my constituency is just below £20,000 a year. The £70,000 is just the price of the property; the key expense will be the plot of land. What impact does the Economic Secretary think the measure will have on the entire price scale, not just on the most expensive properties? People who want to buy new, affordable housing will still find it very difficult to buy a zero-carbon home.
What impact will the measure have on social housing stock? It would be excellent if new social housing could be built on a zero-carbon basis. The fundamental problem is that the proposal will apply only to new properties when, as the Chief Secretary said earlier, one third of all emissions from the UK are from the housing stock. How does that break down between projected new housing stock and existing housing stock? Three quarters of the stock that is standing today will still be standing in 2050, and on that basis the key target must be existing stock, not least because that is where fuel poverty, for example, is at its worst.
In my constituency, there is very poor, usually very old, housing stock, a high incidence of fuel poverty and a poor take-up of the Warm Front scheme, not least because there are no installers anywhere in the county of Cornwall. That deprived group of people cannot access the environmental benefits of the clause or take advantage of provisions that would have an impact on their pockets and save them money. The problem is that those people, whether they are in rented or privately owned housing stock, will not be in a position to benefit from the proposal.
There is great innovation out there, but I am worried that the measure is a very limited way of stimulating increased development. In my constituency there is a hot rocks project—technologies investigating making use of disused mines as a way of cutting down on heating costs. Carrick Housing is being innovative in retrofitting those technologies to its existing social housing stock. The proposed incentive sits outside that framework, however. What plans are there for incentives not only for people looking to buy new houses, but for developers and builders? Ultimately, if using more energy-efficient materials increases costs, the builder who uses them faces increased risk. What plans do the Government have to tackle the inherent inefficiencies in the existing housing stock?

Roger Gale: Before we proceed, I confirm that I am arranging to have the relevant document printed and circulated, within the timescale of the debate, I hope.

Edward Balls: On a point of order, Mr. Gale. In Committee last Thursday, I said to the hon. Member for Wycombe that I, rather than the Chief Secretary, would respond for the Government on these clauses, and that I would ensure that the regulations were circulated in draft. I cleared them on Thursday. I understand that they went from our office to the shadow Chief Secretary, the hon. Member for Chipping Barnet, in the normal way on Friday. I should have endeavoured to ensure that they got to the hon. Member for Wycombe directly as well, so I appreciate the generosity of the shadow Chief Secretary. If we were remiss, I apologise.
I shall re-examine the procedural point that the hon. Member for Wycombe made. This is an important part of the Bill, which creates a regulation-making power on which we will consult. In that light, and given that we intend to conclude the consultation by July and publish a further set of regulations, I would be happy—subject to agreement from the business managers—if we could deal with the regulations under the affirmative, rather than the negative, procedure, to ensure that the House has a further opportunity to scrutinise the detail of the regulations before they come into effect.
For the purposes of today’s debate, it would be good to have the regulations in front of us. Some of us have them and some do not. I hope that there will be an opportunity for the House to debate the regulations further in due course, to satisfy the Committee that we are treating this issue with the seriousness it deserves.

Roger Gale: That is not strictly a point of order for me. As the Economic Secretary said, it is a matter for discussion by the business managers of the Government and the Opposition. I am sure that the Committee appreciates the courtesy of the Economic Secretary’s statement and will find his remarks helpful.

Brooks Newmark: In an attempt to give the Clerks time to print off whatever documents are necessary, I have a number of points to make.

Roger Gale: Order. I am sure that the hon. Gentleman’s remarks will be in order; I would hate to think that he was proposing a filibuster.

Brooks Newmark: My points are always in order and relevant, Mr. Gale.

Roger Gale: I shall be the judge of that.

Brooks Newmark: I welcome the initiative in the light of the 27 per cent. of the UK’s greenhouse gas emissions, or 40 million tonnes a year, that are attributable to households. I am concerned that from the outset there is a limited window of opportunity—five years—attached to the scheme, however. As a business man, I point out that the technology required to approach the standard of a true zero-carbon home will require significant capital investment from developers to reduce the high unit cost of microgeneration technology.
If the Treasury is committed to achieving a culture of change within the building industry, which I wholly support, it is unhelpful that these provisions will be curtailed in 2012. I do not think that proposed new section 58B(7), which mentions the possibility that the Treasury will extend its largesse, will be reassuring to the building industry when looking at long-term investment decisions. The Chancellor’s record shows too many examples of initiatives that are cancelled once they have begun to become effective—the home computing initiative springs to mind.
 The rationale seems to be that stamp duty relief will act as a catalyst for change, after which it can be reassessed and presumably quietly scrapped. However, a five-year window for that process to occur is almost hopelessly optimistic; just how optimistic is shown by the fact that the zero-carbon home is not so much an endangered species as a mythical beast. Although the Chief Secretary says that some zero-carbon homes have now popped up in his constituency, they are hardly widespread. My point is that, even if developers make the decision to develop zero-carbon homes, there will be such a long lead time that the relief will have expired before such homes begin to appear in meaningful numbers.

Paul Goodman: What the Chief Secretary said was that a development of zero-carbon homes is “going forward” at Gallions Park in his constituency. Is my hon. Friend entirely clear—I am not—about what “going forward” means?

Brooks Newmark: I am not sure if the Chief Secretary is talking about a new eco-friendly mobile home; perhaps he has the Foreign Secretary in mind.

Julia Goldsworthy: If I could broaden the debate for a moment, the hon. Gentleman was talking about lead times. Is it not the case that, for individual planning applications, it may well be possible to go ahead and submit a planning application for a very small development? The problem is that there are very large developments on the cards for the coming years which are exactly the type of developments that need to be zero-carbon, but they will probably not go ahead on that basis.

Brooks Newmark: The hon. Lady makes a good point in support of my argument, and I thank her. As I said, my point is that, even if developers make the decision to develop zero-carbon homes, there will be such long lead times that the relief will have expired before such homes start to appear in meaningful numbers.
Aberdeen-based developers the Stuart Milne group have already unveiled a prototype for a low-carbon home. The prototype includes microgeneration technology, such as solar panels and wind turbines, together with reuse of grey water and so on. However, it is telling that the plans still fall short of the desired six-star zero-carbon rating. Quite simply, it will take time to reach the required standard and to roll out both the technology and best practice across the industry. The managing director of the Stuart Milne group had this to say:
“The single biggest impact on our business will be climate change and we felt we should take an industry lead by building a commercially viable house that reflected the Government’s objective to achieve zero carbon houses within a decade.”
However, the key remains that the project must be commercially viable. It is no good making such projects commercially viable for five years, then pulling the rug from under the developers just when they are beginning to catch on.
I have one further point to make on the envisaged time scale. As we have all heard, the Chancellor has recently announced the construction of 100,000 new eco-homes that will meet the zero-carbon standard. Perhaps we should welcome the prospect that 100,000 new home owners will be able to buy homes that benefit from clause 19, but precedent suggests that it will take far longer than five years to deliver those homes. The last time that this policy was launched was 10 years ago, as we heard from my hon. Friend the Member for Wycombe. Then, there were high expectations of the Government. Now, we know better. 
Some £130 million has been spent on the seven millennium communities, delivering homes to the excellence standard. I was amused to see—perhaps this is what my hon. Friend was alluding to—that one of the seven communities, which is in east Manchester, was in true new Labour fashion named New Islington. It is a wonder that the Chancellor did not go the whole hog and call it New Jerusalem, but I hope that he can at least name a street after the Granita. The fact remains that after 10 years the homes have not been delivered, so the idea that a large number of homes will be built in time to take advantage of clause 19 is, once again, optimistic.
We have a zero-carbon standard that many people think is unattainable, we have a very limited window of opportunity to take advantage of tax relief, and we have a Government with a strong track record of scrapping tax reliefs that are actually used. If the Chancellor’s 100,000 houses were to go on the market at an average price of £200,000 each, the Treasury would forgo £200 million in stamp duty. In contrast—I note that paragraph A2.10 on page 230 of the Red Book predicts that “The Exchequer cost” of clause 19
“is expected to rise to around £15 million by 2011-12.”
I know that the Chancellor is strong on mathematics, but that is an anticipated uptake of only 7,500 carbon-free homes by 2012. Even if the Chief Secretary cannot answer the question asked by my hon. Friend the Member for Wycombe, I hope that I have.

Adam Afriyie: I have now had the pleasure, or the disappointment, of reading the Stamp Duty Land Tax (Zero-Carbon Homes Relief) Regulations 2007, and it is interesting to note that, under regulation 14(4), the amount of tax chargeable will be reduced by £15,000, which would mean that the £15 million going to the Exchequer would represent only 1,000 homes.

Brooks Newmark: I am sure that my hon. Friend, in true fashion, makes an even more conservative analysis of the numbers than I have, but I was trying to be generous to the Government in my analysis.
To put it another way, if the Treasury’s projections of revenue impact are not underestimated, it would take roughly 13 years to build the Chancellor’s 100,000 eco-homes alone. In Second Reading, the Chief Secretary was unable to tell my hon. Friend the Member for Buckingham (John Bercow) how much clause 19 would cost each year. Perhaps now that he has had time to reflect and do his homework he can tell us the answer.

Wayne David: The hon. Gentleman has talked eloquently and at length about these new homes, but does he anticipate Conservative local authorities supporting these new homes?

Brooks Newmark: A mere Back Bencher, I am not here to make Conservative policy on the hoof. However, I know that my own council in Braintree is incredibly innovative when it comes to the use of innovative financing and support for eco-friendly homes.
I want to conclude with a plea to the Government for a commitment that clause 19 will become a valued tool to effect a long-term culture change in the construction industry and not just another short-term gimmick.

Philip Dunne: Like my hon. Friend, I support the construction of energy-efficient housing and the Government’s objective in that respect. To help out in response to the intervention from the hon. Member for Caerphilly, there are a number of projects around the country, including in my south Shropshire constituency, where imaginative, creative construction engineers are coming up with projects to develop energy-efficient homes. They are not necessarily all new homes. Many of them include energy efficiency measures for existing homes that we discussed under earlier clauses.
That brings me to the point of my contribution to this part of the debate. The title of the clause that we are considering is not only misleading but a misnomer. As my hon. Friend the Member for Wycombe mentioned, the measure defines zero-carbon homes in terms of energy efficiency in ongoing maintenance and running costs once the property has been constructed. Nothing in the definition in the Bill or in the draft statutory instrument covers the construction costs of such homes. They are not, therefore, zero-carbon, but they are energy efficient going forward. It is unfortunate that the Government have chosen to cloak the clause in green credentials by claiming for it something that it will not actually deliver.
A much more effective means of encouraging energy efficiency than the intended relief from stamp duty would be the introduction of a zero rate of VAT on energy efficiency measures. What work was done by the Treasury to compare the cost of the measure before us and the cost of introduction a zero rate of VAT? That would seem to be a much more effective way of kick-starting the development of such properties, which is the Government’s objective.
In the Red Book, paragraph 7.70 on page 183 includes a reminder of the Government’s ambition
“to ensure that, within a decade, all new homes will be zero carbon.”
That is a very ambitious objective. The proposed measure will go only a modest way towards achieving it—such a modest way, in fact, that I have been unable to find out from the analysis of policy decisions what revenue impact it will have. There is no line setting out the impact of zero-carbon homes on Government revenues this year, next year or the following year. By their own admission, the Government anticipate that this will be a puny measure and will contribute little to the achievement of their objective.
It is no surprise to those who have studied Government measures for energy efficiency and VAT that a zero rate has not been introduced. Only last year, the Government decided to apply VAT to grants given by the Energy Saving Trust, which advises households on energy efficiency. Its chairman told the BBC last July:
“We collect about £25m that we spend on energy efficiency measures and reducing carbon, and we will now take about £5m of those and return it back to the Treasury'”.
 So the Government are using energy efficiency measures as a revenue-raising mechanism rather than to encourage increased energy efficiency. This measure smacks of green gestures rather than of a genuine commitment to greater energy efficiency in housing construction.

Adam Afriyie: I was not intending to speak to this clause, so I shall be brief. I was stunned when I looked a few moments ago through the regulations that have just arrived in front of us. Thank you for ensuring their swift delivery, Mr. Gale.
Since 1997, carbon emissions have risen, green taxes have fallen as a percentage of overall tax take, and the Chancellor has missed his target on renewable energy. The question to which all that gives rise is: why should we have confidence in this new measure, which has suddenly—miraculously—appeared in the Finance Bill, almost as a knee-jerk reaction to pressure from other parties?
My hon. Friend the Member for Braintree mentioned the figure of £15 million, which appears on page 230 of the Red Book in paragraph A2.10. That says:
“The Exchequer cost is expected to rise to around £15 million by 2011-12.”
Although I might be misreading the regulations because I have looked at them so quickly, it is clear that paragraph 14(3) on linked transactions including the first acquisition of a zero-carbon home says:
“The amount of tax chargeable shall be reduced by £15,000 in respect of each first acquisition of a zero-carbon home”.
From a quick calculation, it appears that the Government are allowing for only 1,000 homes to be sold under this regime. Where do the 100,000 zero-carbon homes fit in? Where is the incentive to kick-start the market? How many zero-carbon homes are expected to be built as a result of this measure? It is trumpeted as being a wonderful thing, but as soon as one looks at the detail, it appears almost trivial and irrelevant.
Finally could the Economic Secretary give us one or two tangible reasons why we should have confidence in the measure, given that the regulations seem to be working against the picture that the Government try to paint and we do not even know at the moment whether a single zero-carbon home exists?

David Gauke: I think it would be fair to summarise the Opposition’s contributions as welcoming the principle behind the clause while expressing concern that its provisions may not be used very frequently. We can examine whether one or two developments might come under the clause, given the time frame. Unless it is extended, the provisions of the clause will come to an end on 30 September 2012.
The first and most obvious example of a potential development was referred to by a number of hon. Members, including my hon. Friend the Member for Wycombe, namely the proposals made by the Chancellor over the weekend for five new eco-towns, each consisting of 20,000 homes. My hon. Friend described that as a re-announcement and he may be correct, but let me for the moment assume that it is an exciting, new and wholly original proposal. If so, the time frame—less than five and a half years—is, as my hon. Friend the Member for Braintree pointed out, a somewhat short period in which to benefit from the proposals in the clause. Will there be time? If there is time, it suggests that sites have already been identified. Perhaps there has been some consultation with local authorities already. Perhaps local authorities will not have a role within this area and planning will be done at a central or regional level.
I would be grateful to know what stage these proposals have reached. Perhaps, to be fair, they rely on the work undertaken by the Minister for Housing and Planning. May I say how pleased I am to see the spouse of a member of this Committee feature in our deliberations, particularly when it is someone else’s spouse?

Edward Balls: But don’t call her Mrs. Balls.

David Gauke: I am well aware of that.
My hon. Friend the Member for Wycombe referred to the announcement made in May 2006. Perhaps I can focus on two other announcements made by the Minister for Housing and Planning. In October 2006, she announced 45 new developments as part of the new growth points programme. She described it as
“a significant opportunity for the new communities to become exemplars of sustainability by pioneering eco-development and encapsulating high design standards in parallel with meeting the housing needs of local communities.”
Perhaps that work might be useful in assisting the Chancellor in his exciting, new and wholly original proposals that he announced at the weekend. Perhaps even more relevant would be the announcement made in March this year about new towns. As the Minister said:
“Now is the time for us to look at new eco-towns”.
As a £2 million fund was also announced for the purposes of these new eco-towns in March, will the Chancellor be making use of that fund for his new proposals?
 The appointment of David Lock, chair of the Town and Country Planning Association, was also announced; he will report to the Government on further developing the criteria for eco-towns. Will Professor Lock’s report be used for the Chancellor’s new proposals? If the£2 million fund and Professor Lock’s report will indeed be used for those purposes, it may well increase the chance of those five new eco-towns being developed before October 2012, but it might bring into question just how poor the original proposals were.
My hon. Friend the Member for Braintree alluded to an important point, which is that the Treasury tends to propose exemptions in order to encourage particular behaviour. However, if that behaviour is actually carried out on a much greater scale, that exemption and encouragement tends to be withdrawn. The home computing initiative to which my hon. Friend referred was a good example.
We know that, within the provisions of the clause, the Treasury has the opportunity to extend the stamp duty land tax relief available for zero-carbon homes. Does the Economic Secretary have any criteria in mind that might be used in deciding whether to do so? Given that, by 2016, as we have heard, all new homes are supposed to be zero-carbon, if there are, in fact, many developments by 2012 would it indicate to the Treasury that the relief is successful and should therefore be continued, or would it then constitute too great a cost to the Exchequer and be withdrawn? Conversely, if it is little used—and, as my hon. Friend the Member for Windsor pointed out, there are such indications—would that be an argument for abandoning the relief, because it proves to be useless, or for maintaining it? I am conscious that the Economic Secretary cannot bind his successors and that, by the time that we come to make this decision, I shall perhaps be referring my questions to those sitting on my Front Bench rather than to this Government. None the less, I should be grateful for an indication of what the criteria will be.
Finally, as this relief will apply only to properties of less than £500,000, if house prices continue to grow substantially in the years ahead, a home of £500,000 might not be that exceptional by 2012. Indeed, in some parts of the south-east of England, it is already not that exceptional a price. Would the Government then look at reviewing the figure of £500,000, as that may preclude a lot of new properties by 2012?

Julia Goldsworthy: I am very grateful to you, Mr. Gale, for ensuring that all Committee members have been provided with drafts of the regulations and for giving me the opportunity to speak again. Looking through the draft regulations conjured up concerns borne out of my experience from working as a regeneration officer for Carrick district council before being elected to Parliament. The area of my work was in helping small businesses to access objective 1 funds, and part of the funding available was for work and business space. Because there was a real shortage of business space in Cornwall, it was one of the few areas where private developers could access objective 1 funds. Because there was such demand, tight environmental standards were set for the buildings, so only those applications with the highest environmental standards went forward.
Two things arose from that. First, concerns arose from the fact that the goalposts kept moving, which echoes the concerns of other Members about how people can have confidence that the scheme will not be withdrawn or that higher standards will be set. The moving goalposts undermined confidence in that scheme. Secondly, there was a total lack of capacity to assess the environmental standards that had been set. Even for those projects that were entirely compliant with all the restrictions that had been specified by the objective 1 partnership, it was impossible to find someone in the whole of the south-west region—not just in Cornwall—who was qualified to say whether the criteria had been met.
The concern here is that an accredited assessor will be appointed, but it is not clear from these regulations whether all members of the accreditation scheme for the energy performance and buildings regulations will be eligible to assess whether a home is a zero-carbon home. I suspect that the experience will be the same as mine when I worked for the Carrick regeneration team. Particular people will be specifically qualified to comment on whether a property is zero-carbon, but it is difficult to find such people and, in practice, it could prove impossible.
I would appreciate the Economic Secretary’s comments on how many people he thinks will be accredited, and what the spread will be across the country. My concern is that it will end up being impossible to accredit anyone and that we will encounter exactly the same problems that came up during my experience working for the Carrick regeneration team. I therefore urge him to hold a conversation with the objective 1 partnership office in Cornwall to discuss the problems that it encountered and to find some practical solution. If he does not, the regulations may encounter problems in terms of delivery.

Edward Balls: Thank you, Mr. Gale, for your generosity in dealing earlier with the points of order. It is a privilege to serve under your chairmanship for the first time in a Finance Bill, and I hope that we will be able to continue to have such a co-operative relationship as we move towards the “thank yous”? As I said in my point of order, to the extent that an error was made on my part, I apologise in particular to the hon. Member for Wycombe, with whom I had a direct conversation.
The comments just made by the hon. Member for Falmouth and Camborne, which drew on her own experience, show that it would be desirable to debate the regulations under the affirmative procedure if that can be done. In the policy area in which I have been active in the Treasury, I always welcome the use of the affirmative procedure. When important areas of policy are taken forward, it is right that there should be an opportunity to discuss the detail in the House. I think that sensible Ministers welcome such opportunities. In this case, both because of the problem that we have had this morning but because of the importance of the issues, that would be desirable. I should also say—I shall some back to this in a moment—that these are genuinely draft regulations for consultation.
The consultation process over the next few months will be conducted properly. There may well be changes, as an opportunity to revisit some of the issues would be welcome if that could be achieved. I also think that a debate would provide a welcome opportunity for Conservative members to have a further chance to debate these matters. So far, I have felt a sense of confusion among Conservative Members about the measure. I cannot work out whether they think that it is a good thing, or a bad thing; whether they think that it is insufficiently generous or far too demanding; and whether they believe that the objective of zero-carbon homes is beyond reach or whether the measures are insufficient to the task.
I have also noted the regular tendency of Conservative Members, when talking about the environment, to return to questions of presentation. When an announcement is made and if we are to take forward an agenda on the environment or housing, the important thing is to get beyond the presentation and start talking about the substance. That is what the regulations are about.
The problem with matters of substance is that, when it comes to housing and the building of new houses for first-time buyers, Conservative Members have been consistent in their local opposition to building new houses. When it comes to the measures that we have taken forward since 1997 on the environment, such as the climate change levy, Conservative Members have been consistent in their opposition to taking forward concrete action on the environment. It would be my guess that over the next two years, there will be an increasing debate, not simply about presentation but about substance. Labour Members will relish those debates, because the more we focus on substance, the more people will see that it is this party that produces concrete proposals that deliver for hard-working families. For all their spin and bluster, Opposition Members consistently oppose measures to take forward policies for hard-working families.
The clause, which deals with exemption from stamp duty and land tax for new zero-carbon homes, will take effect from 1 October 2007. It will kick-start the technologies and techniques needed to build zero-carbon homes to meet our ambition that from 2016 all new homes should meet the zero-carbon standard and make no net contribution to carbon emissions. As hon. Members have noted, that has been a subject of much debate lately. The issue has been with me day and night in recent days—

Mark Hoban: Months.

Edward Balls: And months. As Opposition Members point out, to take an idea, to build support not only in Parliament but among voluntary organisations and house builders, to discuss it with local authorities and the wider public, and to persuade what looks likely to be the next Prime Minister to back it in public is the process of policy-making that delivers hard outcomes. That is what has been going on over the past year. I cannot work out whether Opposition Members support the proposal or oppose it, or whether they are just confused. When people read the Hansard report, they will conclude—

David Gauke: The Economic Secretary places great significance on being able to persuade the next Prime Minister to back a proposal that was publicly made under the present Prime Minister. Is the hon. Gentleman therefore saying that until the Chancellor publicly backs announcements that were made under the previous Prime Minister, we cannot necessarily assume that the Chancellor supports them?

Edward Balls: As I said, a notable feature of the debate is that one listens hard but ends up being very confused by the contributions of Opposition Members. The Chancellor of the Exchequer announced in the Budget a tax measure to back our zero-carbon homes plans, so he has clearly been backing the proposal for some time. It was prefigured in the pre-Budget report.
My point is that when the putative Prime Minister backs a measure on the campaign trail it increases the substance and salience of the issue. Over the next two years there will be two potential Prime Ministers—one in office, and the Leader of the Opposition. Debates of substance on these issues will be very much welcomed on the Labour Benches.

Theresa Villiers: The Economic Secretary is very focused on concrete outcomes, but so far the concrete outcome of the measure is that the Government cannot tell us that there are any zero-carbon homes at all.

Edward Balls: I was expecting you to allow your indulgence to be stretched only so far, Mr. Gale, to encourage us to get back to the substance of the debate.

Roger Gale: Order. The hon. Gentleman is very impressive; he has hit the nail exactly on the head.

Edward Balls: Encouraged by your good self, Mr. Gale, and by the hon. Lady, I shall continue. I am happy to respond in detail to the questions asked by the hon. Member for Wycombe and others.
I shall briefly put the proposal in context. We set ourselves a target to reduce overall carbon emissions in the UK by 60 per cent. from 1990 levels by 2050. More than 25 per cent. of all carbon emissions in the UK result from energy use in the home. In 2050, about one third of all homes will have been built after 2016. If we can ensure that all homes built after 2016 are zero carbon and that they will make no net carbon emissions, it will make a very significant contribution towards the 2050 objectives. In answer to a question asked by Opposition Members, if all new homes were zero carbon by 2016 the annual carbon saving would be 8 million tonnes a year, amounting to 90 million tonnes saved by 2050, which is a substantial potential contribution to meeting our environmental challenge.
I encourage Opposition Members, particularly the hon. Member for Ludlow, to be more confident and ambitious in backing our objective for zero-carbon homes, rather than starting from a position of scepticism and conservatism. Our ambition to have zero-carbon homes from 2016 is bold and radical, but I believe that it is deliverable and I shall explain why.
In recent years, we have used building regulations to improve the energy efficiency of new homes. Changes to the building regulations in 2006 achieved a 40 per cent. improvement on pre-2002 standards, and a 70 per cent. improvement on pre-1990 standards in the efficiency of new homes. However, this Government want to go further. In part, we will do that through regulations that require that by 2016 new build houses will meet the zero-carbon standard. As the hon. Gentleman knows—this is outside the scope of the Committee, but relevant to the debate—a consultation process on building regulations and the definition of zero-carbon homes is under way, led by the Department for Communities and Local Government.
 Guidance on six different levels of sustainability has been issued to help the industry. The strategy of the DCLG is to build the regulations up over time toward the level that will ensure the building of zero-carbon homes. Building regulations will play an important part in our achieving our objective. We will also, as we heard in the announcements that were made at the weekend, depend on local leadership. The Government’s objective is not to impose new planning requirements or new eco-towns on local communities but to encourage proposals for eco-towns to be made locally.
I urge hon. Members on both sides of the House to back such proposals rather than to be sceptical about them. It is crucial to build a cross-party consensus in our country on the importance of building sustainable homes. I am continually frustrated that, for all the talk, Opposition Members all too often appear to stand in the way of such developments. The right way forward is not to impose from the centre but to encourage local leadership. That is our objective in the eco-towns proposal.

Paul Goodman: On the subject of frustration, I am waiting for the Economic Secretary to answer some of the questions that were asked. For example, given that he was able a few moments ago to give us a figure for carbon savings, surely he can tell us how many zero-carbon homes the Treasury estimates will be built as a result of this measure. What is the answer?

Edward Balls: The hon. Gentleman will have to hold back his impatience and wait for me to answer his question. I said that I would do so and I meant what I said, so I will—in due course and in my own time.

Julia Goldsworthy: I am pleased to hear the Economic Secretary speaking about the need for local leadership. However, I do not understand how he can square that with the position that the Government took on the Local Planning Authorities (Energy and Energy Efficiency) Bill—the private Member’s Bill that came after Second Reading of the Sustainable Communities Bill—which specifically allows local authorities to set higher environmental standards when giving planning permission for properties. Why did the Government take that position and how does he resolve the contradiction?

Edward Balls: That point goes well outside the responsibility of the Treasury or the scope of this Committee. However, a consultation is under way on building regulations for interim steps to improve standards between 2010 and 2013, before we go to full zero-carbon homes by 2016. The Government have launched the code for sustainable homes in England as a voluntary standard. It will allocate a star rating from one to six for new homes by assessing their overall sustainability and setting out aspirations for new build housing. Progress is being made.
It is important that we make progress on social housing, too. We have announced that the minimum requirement on all homes built with social housing grant or on English Partnerships-developed land will be to meet code level three. That is a 25 per cent. improvement on current building regulations for energy performance. Obviously, we want to go further in that area, too. The lead on that, however, will be taken by the Minister for Housing and Planning rather than by me. My role is to talk about the tax measure that we are introducing today, which I shall turn to now.
The clause amends the stamp duty land tax legislation in the Finance Act 2003 by inserting new sections to deal with relief or exemption for the first sale of new zero-carbon homes. They will enable the Government to make regulations to define zero-carbon homes, to quantify the amount of relief or exemption and to deal with administrative matters. The regulations will cease to have effect at the end of a five-year period, on 30 September 2012, unless we decide to extend that relief further. In the Budget, we said that we will review the effectiveness of the relief before the end of that period to see whether it should be extended. We will make that decision in the light of the circumstances at the time and the effectiveness and cost of the measure.
 To the hon. Member for South-West Hertfordshire, I say that we will use a range of criteria to assess the measure. If it turns out that the objective has already been reached by the time of the assessment and every home is zero-carbon, that might suggest that we do not need to continue with the measure. If, as I anticipate, developments are proceeding apace but there is still further to go, it might be right to extend the relief, subject to cost considerations, which the Chancellor of the day will have to consider carefully. In this area, it is sensible to make policy by setting out regulations for five years, to assess performance along the way and to give a clear, public signal of our future intentions well in advance of the end of that five-year period. That is what we will do.

Adam Afriyie: From my business background, and given how long it takes to build properties, it seems to me that putting a short time limit on the tax relief sends a signal that the Government are uncertain whether the relief will continue. What confidence does that inspire in builders, who have to invest hundreds of millions of pounds developing new homes? It sends no confidence signal at all.

Edward Balls: I have great respect for the hon. Gentleman’s business background. Let me quote from Stewart Baseley, the executive chairman of the Home Builders Federation:
“We welcome this package of measures in setting both the goal and direction for achieving more and greener homes. Progress will be achieved most effectively through a framework in which Government sets clear objectives, industry is given the space to deliver and consumers are on board.”
That is exactly what we will achieve with these measures. Dave Hill, a developer in Upton, Northampton, said:
“The costs of making a conventional home into a zero-carbon home aren’t as bad as I thought. It gives me confidence that, in 10 years’ time, we will be building them for the mass market.”
Hon. Members do not have to take my word; they can take the word of the business men who made those contributions.

Brooks Newmark: Will the Economic Secretary give way?

Edward Balls: I want to make a bit more progress, then I shall take the intervention.
The regulations that we set out are in draft. For reasons of good policy making and wider politics, we welcome the opportunity to have a further debate if the business managers allow. We genuinely intend to consult on the regulations. The Department for Communities and Local Government is currently consulting on the definition of zero-carbon homes by 2016, which is part of the reason why our approach must be consultative. Our regulations are running in parallel, and it desirable that those consultations end up with aligned definitions. That is our hope and expectation. The regulations will therefore have to be considered in the light of those wider consultations.
The first exemption will be complete for all new homes priced at less than £500,000; purchases above that level will benefit by £15,000. Stamp duty land tax will be paid only on the balance, which is equivalent to stamp duty at £500,000. The regulations set out a technical definition of a zero-carbon home, but that is in draft and for consultation.
As the hon. Member for Falmouth and Camborne said, the regulations provide for operational matters, particularly certification. Stamp duty is a one-off tax, so it is important to ensure that the certification is robust and protects us against avoidance when we levy it, and that is partly why we need to ensure that we get the consultation right. Finally, the regulations also contain rules about microgeneration and dealing with linked transactions.
Let me now turn to the questions that hon. Members put to me. The first relates to current developments and costing, which I am happy to discuss. There is much discussion of the Gallions Park development in the Chief Secretary’s constituency, and that development is moving forwards, not backwards.
 Mr. Goodman rose—

Edward Balls: Shall I make the point first, or does the hon. Gentleman want to intervene before I do so?

Paul Goodman: I would like to intervene first. The Economic Secretary says that things are moving forward, but will he clarify whether that means that planning permission has been given?

Edward Balls: The hon. Gentleman has intervened to make exactly the same point that he made in his speech. Given that it is the same, I will answer both his speech and his intervention now. The London Development Agency has earmarked the site for the development of a zero—[Hon. Members: “Ah!”] Ah? The agency has earmarked the site for the development of a zero-carbon house—[Hon. Members: “A house?”] Sorry, homes. A developer has been announced since the pre-Budget report, and the GLA has appointed an approved contractor. The development is within GLA guidelines, as the hon. Gentleman knows. In due course, under the present process, planning permission will be considered. Has planning permission been granted at this stage? As I understand it, it has not. The reason is that the development is going through the planning process. That is what happens when we build houses: we go through a planning process, and that is what is going on with that development.
 There is also a development on surplus public land at Northstowe in Cambridgeshire, which is intended to be an exemplar growth-area development. The development aims to be low carbon, but I do not believe that it is intended to be zero carbon at this stage.
As I explained earlier, the ambition is to move towards all homes being zero carbon by 2016. The starting point today is that few or no homes are zero carbon. We have set out to achieve our objective by 2016 and we believe that it can be achieved by steadily building up building regulations and using a tax incentive to encourage developers to take the necessary steps. That objective can be achieved by 2016, but it is not being achieved today. We are taking the proposed steps so that we can save a further 8 million tonnes by 2016.
There are few or no zero-carbon homes today. As the Chief Secretary said on the Floor of the House, there is intended to be a development in his constituency and there are small demonstration projects around the country. However, we are starting with no or few zero-carbon homes and we intend to get to the point where 200,000 such homes are built each year by 2016—that is the ambition. When hon. Members say that there are no zero-carbon homes today and say “Ah!”, they are right, which is why we are introducing a policy of regulations and tax incentives to achieve our objective. Opposition Members were very sceptical about whether our objective is deliverable, and I understand that, but I disagree. By taking the right action, we can deliver on our objective of moving from zero homes to 200,000 over the next eight years.

Mark Francois: Let us return to Gallions Park as an example of the process that is under way. If I heard the Economic Secretary correctly, he said that planning permission had not yet been granted for zero-carbon homes at that location. However, he implied, although did not state, that a planning application had been submitted. If so, it would have to specify how many zero-carbon homes were proposed. Will he confirm whether a planning application has been submitted for zero-carbon homes at Gallions Park and, if so, how many are to be zero carbon?

Edward Balls: It would be inappropriate in a Finance Bill debate for a Minister to set out the details of a particular planning application, or to give indications of its contents—[Interruption.]

Roger Gale: Order.

Edward Balls: As for its content or its chances of success, the question was raised with me, and I said that as I understand it, the proposal is going through the planning process but a decision on its acceptability or otherwise has not been made. That decision would never, in any event, be made by a Treasury Minister, so it would be inappropriate of me to comment.

Mark Francois: Will the Economic Secretary give way?

Edward Balls: I shall finish the point first. The development intends to deliver zero-carbon homes—that is its objective, as I understand it. I also said that the proposal is within GLA guidelines and a contractor has been approved. It is a good job that it is in a constituency that has a Labour Member of Parliament. I fear that if it had had an Opposition Member of Parliament, there would have been local objections on the hon. Gentleman’s website.

Mark Francois: This doctrine that the Economic Secretary has developed that Members of Parliament and Ministers do not comment on planning applications is a revelation to me. The Secretary of State for Communities and Local Government has a great history of commenting on planning applications—usually to object to them in her own constituency. He has reinvented parliamentary doctrine on his feet.
To come back to the point, a planning application, by definition, is a publicly available document—under the planning process, it has to be. Given that it is a publicly available document, there should be no problem about the Economic Secretary’s commenting on it. Has a planning application been submitted at Gallions Park and, if so, how many zero-carbon homes are in it? Will he answer those two simple questions?

Edward Balls: As I said, it would be entirely inappropriate for a Treasury Minister, during proceedings on a Finance Bill, to comment on a particular housing development. I am not going to comment on what individual Members do in their constituencies. That is a matter for them. I shall just point out that, as it happens, hon. Members opposite consistently oppose housing developments in their constituencies.
In the case of Gallions Park, I am advised that the planning process is under way. I do not know what stage it is at, and there is no reason for me to know that. All I know is that the intention is that it will be a development of zero-carbon homes. The hon. Gentleman is trying to make the point that there are currently no zero-carbon homes. I would say that he is right. There are none. That is why we are legislating in the Finance Bill, with public money, for an incentive to deliver such homes—in fact, for all homes to be zero carbon by 2016.
As I said to the hon. Member for Wycombe last week, I cannot understand the point that hon. Members are making. If they are claiming that there are no zero-carbon homes today, they are correct. Luckily, we have a Government with the confidence and commitment to set an objective to deliver zero-carbon homes by 2016 and to take the actions on tax and regulation to achieve that. If the hon. Gentleman would clarify his point, it would help me very much.

Paul Goodman: I can certainly clarify it. We are trying get a clear answer from the Economic Secretary as to whether the figure is a couple of dozen, as the Chief Secretary claimed on “Newsnight”, or, as he said today, very few or none. Very few and none are not the same, so which is it?

Edward Balls: The answer is that, to all intents and purposes—given that our objective is to get to 200,000 a year by 2016, and we are currently consulting on regulation changes and legislating on tax so that we can start the process of getting zero-carbon homes—so far as I am concerned, today there may well be none.

Julia Goldsworthy: Will the Economic Secretary give way?

Edward Balls: In a moment.
I do not know the answer to the hon. Gentleman’s question. It may well be that there are a number—a small number—of lower-carbon homes around the country. Given that the Department for Communities and Local Government is currently consulting on what the definition of zero-carbon homes should be, and given that we are consulting on draft regulations about what the definition of zero-carbon homes for tax purposes should be, I am afraid that the answer to the question of how many zero-carbon homes there are rather depends on the outcome of those two consultations.
The point that the hon. Gentleman seems to enjoy making is unbelievably obscure, and therefore we might as well all agree that we are starting from a position whereby the number of zero-carbon homes is low or zero and our objective is to get to 200,000 a year. Perhaps we should get on to the substance of whether we are taking the right decisions on regulation and tax to reach that objective, rather than engaging in this seemingly obscure and meaningless debate.

Paul Goodman: I will help the Minister to move on, passing over the point that he has just given us a fourth answer, which is that he does not know. The question that I would like to ask him is can he tell us how many homes will be built as a result of this measure?

Edward Balls: I will come on to the costing of the measure in a second. I do not think that there is a single member of the Committee who knows how many zero-carbon homes there are. We are currently consulting on what the definitions should be exactly, for regulatory and tax purposes.
 Julia Goldsworthy rose—

Edward Balls: Perhaps some clarity can be provided by the Liberal Democrats, because we are getting none from the Conservatives.

Julia Goldsworthy: Because the definition of a zero-carbon home has not been set—the clause establishes how that definition will be achieved and what the tax reliefs will be—surely that means that there are no zero-carbon homes at present? There may be some energy-efficient homes out there; I can think of some in my constituency. However, if the definition has not been set, one cannot say how many exist. Is that not straightforward?
 Ed Balls rose—

Roger Gale: Order. I have listened carefully—probably rather more carefully than some other people in the room—for quite a long time to this debate. It strikes me that it is going round in circles.
When I first entered the House, there were devices called parliamentary questions, which enabled Back Benchers in particular to obtain information of the kind that is being sought in the Committee. It seems to me that we are getting to the point at which the Economic Secretary is being asked questions that are probably, and properly, outside his ministerial remit. I would be grateful if the Committee could return to clause 19 and the economic substance of the Finance Bill.

Edward Balls: I shall come on to the substance of the hon. Gentleman’s question, which is about the costings.
As I said, we start from a position where a small number, or zero, homes are zero carbon. We are consulting on exactly what the definition of zero-carbon homes should be for tax purposes; it is a genuine consultation, and it was conducted mainly to change the regulations following that consultation. Our aim is to get from zero to 200,000 zero-carbon homes a year by 2016. At this stage, given that this is uncharted territory, we do not know what the pace of build-up will be. It will depend on the way in which the regulations are calibrated and ratcheted up, and also on the success of this tax measure. It is not easy for us to make a forecast. Therefore, the Treasury has to make a decision as to how we sensibly cost this measure in the Finance Bill, when we do not know exactly what the outcome is likely to be. There is not really any sensible basis for a forecast, because we are starting, essentially, from zero.
We took the view that we start from zero and will get to 200,000 in 2016, and that the build-up will not be linear, or like a straight line, but that there will be a progressive acceleration over that period. On the basis of that, from nought today to 200,000 a year by 2016, and on the basis of the stamp duty relief that we have set out today, we will produce a costing.

Brooks Newmark: Will the Minister give way?

Edward Balls: In a second.
On the basis of the costing, as set out in the Red Book, for the build-up that we have estimated or projected, the costing by 2012 will be around £15million.

Stewart Hosie: Will the Minister give way?

Edward Balls: In a second.
On that basis, costing by 2012 will be around£15 million a year. It may well be that the target will be reached faster than in that non-linear projection; it may well be that that happens more slowly. If it happens more slowly, we will either have a later acceleration or miss the target. We may need to make the relief more generous. If it happens faster, it may well be that the cost of the measure will exceed our estimates—a very desirable thing indeed. This is one of those areas where the Treasury would be pleased if the cost of the measure exceeded our expectations. We have projected forward from zero to 200,000 on a curve, and produced some costings on that basis.
Given the nature of the exercise, it would not be sensible for us to set out in detail the actual numbers at each point along the curve because that would give the impression that the process was based on science and forecasting, and that it was an objective. Frankly, it does not have that status. We do not know what the take-up will be, but we will have much more evidence in a year or two. It is a sensible, projected way to cost, and that is what we have done.
I am sorry if that does not satisfy the hon. Member for Wycombe, but it is the best way to proceed, given that what we are doing is so innovative. It has not been done before, and there is no sensible way of making a forecast. He asked what my forecast was for 2012. We do not have a forecast, but our objective is to get from zero to 200,000 a year by 2016.

Stewart Hosie: I like the Minister’s honesty in saying that this is not based on science and that there is no sensible way of making a forecast. However, given the consultation on the definition and that only after the outcome of that will we know what the real cost of a low or zero-carbon house will be, surely that should be the point at which to determine what tax incentives might be necessary to provide the correct incentive for a large number of such properties to be built. Would not that be the correct approach?

Edward Balls: I understand the hon. Gentleman’s point, but we are using language carefully, which hon. Members mocked, and kick-starting a process. If something like a motor bike is kick-started, it is because it is stationary and one wants it to move forward. There are very few carbon-zero homes and we want to kick-start the process by saying that as well as regulatory change there will also be a tax incentive on the table. That is what we are legislating for, and consulting on in the case of the regulations, so that we can kick-start a path towards 200,000 such houses a year by 2016.
The hon. Gentleman is absolutely right to say that as we gain more experience we will be able to see whether the stamp duty exemption—it is only part of the package; the regulations are also important—is sufficient. We do not know the answer, which is why we must return to the matter following a debate in Committee on future Budgets. We may need to make the measure more generous, or we may find when we look in advance of 2012 that we were more generous that we needed to be and that there is a lot of dead-weight cost.
The problem is that because we are at the start of the process, we do not know the answers to the questions. After five years’ experience we may know how we could have kick-started the initiative, but logically that is beyond us. We must set out a sensible incentive and use it to deliver our goal.

Brooks Newmark: As I said at the beginning of my speech, I support the aspirations and ambitions of the clause, as I believe we all do, but we are questioning the detail. One question that the Minister has not answered is about the time frame. He set an ambitious target for 2016 and, as a business man, I have said that 2012 will be challenging, given the planning challenges and so on. How many business men did he consult in coming up with the 2012 and 2016 figures, and what feedback did he receive on 200,000 a year being realistic, which I would support if he could get there?

Edward Balls: That point was also well made by the hon. Member for South-West Hertfordshire, who asked in particular about 2012, and I answered the question then. Clearly, it is sensible at the beginning of a process to set out tax relief over five years and then to assess its effectiveness clearly before the end of that time frame. I have said that if we have not achieved our objective but the tax incentive is working, the sensible thing for us to do would be to extend it—[Interruption.]

Roger Gale: Order.

Edward Balls: We will do that in plenty of time. I answered that point carefully.
 The hon. Member for Braintree, again citing his business credentials, asked about businesses being consulted and I read out two quotes from business people who have given their views. We are now consulting on the basis of the regulations for the stamp duty exemption. Consultations on the wider zero-carbon homes initiative are being taken forward by the Department for Communities and Local Government, and the Treasury is part of that process.
I assure the hon. Gentleman that in order to meet our objectives, we will be consulting the business and wider communities in the coming months. As I said, we have also consulted on the preparation of the policy. I was confused because Opposition Members seemed to claim that the objective was both trivial and unachievable. They had no coherence of view.
We are setting out a bold, innovative, radical, coherent policy in which tax can play a part in contributing to the wider objective of every home being a zero-carbon home by 2016. I hope that it will be possible to have a debate in Committee on the regulations because Labour Members relish debates on housing and the environment. A further opportunity to set out thinking following consultation on some of the detailed points would be welcome and desirable. I hope that the Committee will allow us to move forward.

Question put and agreed to.

Clause 19 ordered to stand part of the Bill.

Clause 22

Aggregates levy: exemption for aggregate removed from railways etc

Question proposed, That the clause stand part of the Bill.

Paul Goodman: I simply want to ask for the tonnage of aggregate to which the Treasury expects the exemption to apply to be put on the record.

John Healey: As the Committee knows, the aggregates levy is designed to bring environmental benefits by making the price of aggregates better reflect their true environmental costs, and therefore encouraging recycling and the use of alternative materials.
The clause introduces a new exemption from the levy for aggregate removed from the ground along the proposed line of a railway, tramway or monorail in the course of maintaining, constructing or improving it, provided that the aggregate was not excavated purely for the purpose of extracting it. It makes the treatment of railways, tramways and monorail consistent with those of the construction and maintenance of highways. It is also consistent with the environmental rationale, which is to give aggregate produced as a by-product a commercial advantage over directly quarried aggregate.
We expect that the cost of the revenue exemption in the clause is unlikely to exceed £3 million each year. We treat that as an estimate, therefore there are no specific calculations of the tonnage that will be affected. I hope that is sufficient information for the Committee to accept the clause.

Question put and agreed to.

Clause 22 ordered to stand part of the Bill.

Clause 23 ordered to stand part of the Bill.

Schedule 2 agreed to.

Clause 24

Landfill tax: bodies concerned with the environment

Question proposed, That the clause stand part of the Bill.

Paul Goodman: Members of the Committee will see from the explanatory notes that the clause gives powers to Entrust—it is not actually named in the notes, but it is the regulatory body that oversees environmental bodies that make use of the landfill communities fund—and to HMRC, which oversees Entrust. The scheme, which allows a portion of the landfill tax to be given to local community social and environmental schemes, was reformed in 2003 following fears that it was being abused to some degree. The HMRC website lists further changes that the clause will bring about. How many environmental bodies had their approvals by Entrust revoked in 2004-05 and during subsequent years, and what is the cost of administering the scheme?

John Healey: The clause should improve the operation of the landfill communities fund, which was known until last year as the landfill tax credit scheme. Every member of the Committee will have a significant number of projects or schemes in their constituency that have been supported in recent years by the landfill communities fund—valuable projects, such as improving, building and repairing village halls, churches or historic buildings, or providing sports facilities, cycle trails and wildlife sanctuaries. Since the fund was set up, it has received £875 million towards such ends, providing projects and schemes that benefit a spectrum of our communities.
 HMRC approves a regulatory body to oversee the fund. Currently, that body is Entrust. We have not specified Entrust in the legislation, because, as the hon. Gentleman will recognise, there might be circumstances—although we do not have this planned—in which the regulator body would change. It does not seem sensible, therefore, to specify Entrust in the legislation.
Entrust oversees a fund that we increased in the Budget by a further £5 million, so that it will be worth £65 million in this coming year. It already works to conditions agreed by HMRC that are contained in its terms of approval, which is a document agreed between HMRC and Entrust each year. The statutory instrument provided for by the clause will enable the commissioners to impose enforceable conditions. In the event of a failure to observe those conditions, they may take steps in extremis to revoke the approval of the regulatory body.
The statutory instrument will give a binding effect to any targets or performance measures that the commissioners might wish to see from Entrust. It will also allow Entrust to add or remove conditions on environmental bodies in line with best practice and the principles of better regulation. Under the conditions of its approval, Entrust will now have to provide the commissioners with advance notice and obtain their agreement to any general conditions it intends to impose on environmental bodies.
The first condition that is being added will require environmental bodies to provide project details in advance of spending. That is already established as best practice and is followed in the vast majority of cases. However, at present when it is not followed and when there is resistance from the environmental body, Entrust is not in a situation in which it can require that the environmental body follows those best practices. Indeed, as things stand, an environmental body that was determined not to follow the best practices as set out by the regulator could challenge Entrust’s ability to insist on them. The clause and the regulation that stems from it will remove that uncertainty and reinforce Entrust’s hand, quite rightly, in ensuring that environmental bodies follow the best practice that it sets. There is negligible cost to the Exchequer from the changes.
The hon. Gentleman simply asked how many environmental bodies had had their approvals revoked in 2004-05. A very small number have had them compulsorily revoked. My estimate, from dealing with this territory in the past few years, is fewer than five, but, if he will accept this way of dealing with things, I shall write to him if I recover further information from HMRC.
The statutory instrument goes wider than the clause, but it came into effect on 1 April, in line with, and in time for, Entrust’s new financial year, and the business plan that applies to it.

Question put and agreed to.

Clause 24 ordered to stand part of the Bill.

Schedule 3

Managed Service Companies

Theresa Villiers: I beg to move amendment No. 38, in schedule 3, page 90, line 16, after ‘payments’, insert ‘for a year of assessment’.

Roger Gale: With this it will be convenient to discuss the following amendments: No. 39, in schedule 3, page 90, line 19, after ‘services’, insert ‘for that year of assessment’.
No. 40, in schedule 3, page 90, line 21, leave out from ‘person’ to ‘the’ in line 22 and insert
‘whose sole or main business is the provision and facilitation of’.
No. 41, in schedule 3, page 90, line 23, leave out ‘involved with the company’ and insert
‘regularly involved with all or most aspects of running the company on an ongoing basis’.
No. 42, in schedule 3, page 90, line 24, at end insert—
‘(1A) In considering whether a company is a managed service company within the meaning of subsection (1), no regard shall be had to any other companies with which the MSC provider is involved’.
No. 43, in schedule 3, page 90, line 35, leave out ‘subsection’ and insert ‘subsections’.
No. 44, in schedule 3, page 90, line 35, after ‘(1)(d)’, insert ‘or (2)’.
No. 45, in schedule 3, page 90, line 36, leave out from ‘providing’ to end of line and insert
‘services of a nature provided by advisers in a professional capacity, including legal, accounting and company secretarial advice.’.
No. 46, in schedule 3, page 90, line 36, at end insert—
‘(3A) For the purposes of subsection 3, accounting advice includes, but is not limited to, advice and assistance concerning:
(a) preparation or provision of records, returns, financial statements, reports or financial information concerning accounting;
(b) auditing, insolvency or taxation matters;
(c) communication and representations made on behalf of a client to third parties in matters concerning accounting, auditing, insolvency or taxation.
(3B) The Treasury may by order provide for a non-exhaustive list of professional services which fall within the meaning of subsection (3) and (3A) above.
(3C) The Treasury may not make an order under subsection (3B) unless a draft of it has been laid before and approved by a resolution of the House of Commons.’.
Government amendment No. 97
No. 47, in schedule 3, page 91, line 2, at end insert—
‘(3A) An MSC provider may be a partner in a partnership (other than the individual referred to in section 61B(1)(a)) and may, for the purposes of section 61B(1)(d), carry on, through the partnership, the business of promoting or facilitating the partnership to provide the services of individuals.’.
No. 48, in schedule 3, page 92, line 2, leave out ‘mentioned in section 61D(1)(b)’ and insert
‘which satisfies both section 61D(1)(b) and section 61D(1)(c).’.

Theresa Villiers: It is a pleasure to address the Committee in the pre-lunch graveyard slot. Schedule 3 provides for the insertion of new section 61B into the Income Tax (Earnings and Pensions) Act 2003, which contains conditions setting out the definition of what is known as a managed service company; that is the focus of this measure. Where the relevant conditions are satisfied in relation to a particular company it will be obliged to account for PAYE and national insurance on payments that it has made in connection with the services of the workers whose services it provides.
If the company does not make those payments, schedule 3’s proposed new section 688A of ITEPA allows HMRC to pursue certain third parties for the tax liability. The provisions represent the Treasury’s latest attempt to police the borderline between those operating and providing services of a freelance and contracting nature through companies, and those who are employed. They are a successor to chapter 8 ofpart 2 of ITEPA, the controversial measure commonly referred to as IR35.

Stephen Hesford: The hon. Lady will recall our debates in the House on clause 25. She and I discussed IR35, which she has now conveniently mentioned. I said to her that Opposition Members had overplayed its problems, and were overplaying the problems with the schedule, and that no one had ever approached me in my constituency subsequent to the previous so-called row.
After I said that, one of the so-called organisations that she seeks to represent put on its website a message encouraging people in Wirral, West to contact me if they had had problems with IR35, because I had said that there had not been any. No one contacted me, except one person who turned out not to be my constituent. What she is about to say is overplaying the problems with the schedule.

Theresa Villiers: I do not accept that we are overplaying concern about schedule 3, and I shall refer to some of the contractors who have been in touch with me about the fact that their work is in jeopardy and they are suffering problems because of the schedule and the uncertainty associated with it. I understand that IR35 has cost an incredible amount of money and time in compliance checking. It is regrettable that the Government have always refused to publish any information on the revenue that they have collected through IR35, given the significant compliance burden that it has placed on every contractor; every time contractors enter into a contract with an end client they must check. That costs money. I am not convinced that the revenue raised as a result has justified that compliance cost.
 The Opposition are happy to support properly targeted attempts to crack down on abusive behaviour in that area. However, we are concerned that legitimate freelance workers who are genuinely in business on their own account will be hit by schedule 3 where they choose to outsource functions relating to the service company with which they are connected. Similar concerns have been expressed by a range of bodies, including the Institute of Chartered Accountants in England and Wales, the Chartered Institute of Taxation, the Law Society, the Professional Contractors Group, the London Society of Chartered Accountants, the Institute of Directors and the Association of Technology Staffing Companies.
The goal of the amendments that we have tabled is to prevent the new framework from biting on genuine freelance workers who are not in a disguised employment relationship. We also seek to ensure that those professionals who advise freelancers and small service companies are not unwittingly or unfairly caught up in the legislation and made liable for the tax debts of their clients. Lastly, we seek to prevent the serious damage that could be caused to the flexibility of the UK labour market if staffing companies and the end clients who engage contractors find themselves at risk as a result of schedule 3.
Above all, we will be seeking clarity and certainty from the Minister about what his legislation means. That is an incredibly important task for the Committee—even more important, dare I say it, than in our previous debate on how many zero-carbon homes there might or might not be. The confusion surrounding schedule 3 is causing enormous anxiety and it is already costing people their jobs. To illustrate that, as I told the hon. Member for Wirral, West, who intervened earlier, I will refer to just three of many representations that I have received from people worried about the proposals.
Ian Preece, director of Greybeard Consulting Ltd, told me:
“the biggest issue I have with the proposed legislation is the fact that it is impossible to understand if you will be ‘caught’ or not. Therefore trying to understand if I will be affected or not is akin to gazing into a crystal ball.”
Andrew Frith of AFMS, an IT consultancy based in the north-west, told me:
“We seem to have fallen victim to the new MSC regulations even though the legislation is not yet on the statute books and in any case would not seem to directly affect our company at all. The problem is that due to the transfer of debt provisions...recruitment agencies are not prepared to deal with us ‘just in case’ we come within the provisions. Our supply of new work for our consultants has dried up...we are now making a significant loss and have already had to take action by giving notice to our newest recruit.”
Chris Cumber, who runs a small contracting business, said:
“My concern is that my accountant appears unable to answer my question ‘Does his involvement make my company an MSC?’. I seem to be spending more and more time worrying about uncertain taxation and less time actually producing income for my company. The latest attempt is badly worded...and designed...to have us contractors running around like ants”.
He concluded on this pessimistic note:
“It will all end in tears with some case-law, which is totally counter-productive for the Chancellor’s coffers and for us contractors”.
Having introduced the general issues, I will deal with amendments Nos. 40, 41, 45 and 46, which go to the heart of the concerns that I have set out. Subsection (1)(d) and subsection (3) of proposed new section 61B, which these amendments seek to amend, play a central role in determining the scope of the provisions under discussion. Paragraph (d) states that a company becomes an MSC if it is involved with “an MSC provider”, which is defined as someone who
“carries on a business of promoting or facilitating the use of companies to provide the services of individuals”.
Subsection (3) provides a limited carve-out from paragraph (d) for certain professional advisers.
Amendments Nos. 40 and 41 would restrict the scope of paragraph (d) so that it bites only where someone
“whose sole or main business is the provision and facilitation of”
the use of companies to provide the services of individuals, is
“regularly involved with all or most aspects of running the company on an ongoing basis”.
Amendments Nos. 45 and 46 would clarify the ambit of the protection afforded to professionals under subsection (3).
 Those four amendments seek to address the concern that the definition of MSC provider is very wide, and would catch anyone involved in setting up companies as part of their business—for example, lawyers, accountants and company secretaries. The amendments tackle an important flaw in the legislation, in that it could hit genuine freelancers who choose to outsource aspects of the management of the companies through which they work. Without clarification, paragraph (d) could also impose significant risks on those who regularly advise freelance workers and it would leave them potentially liable for the tax debts of their clients, as well as leaving them at risk of being sued by other people who might be drawn into the MSC net or the third-party debt rules as a result of the professional adviser’s activities.
 The danger is that that will drive up the cost of professional advice for small companies, as advisers withdraw from the market or charge higher fees in order to compensate for the increased risk that they are undertaking. The intention behind the four amendments is to ensure that the legislation does not impose unreasonable restrictions on contractors who want to outsource administrative functions in relation to their service companies and that ordinary professionals on a day-to-day basis are not included in the definition of MSC providers.
The key question that the Committee needs to address is how do we ensure that a sensible line is drawn between those professionals operating on an ordinary, day-to-day basis and the dubious operators whom HMRC wants to shut down. The Institute of Chartered Accountants has highlighted, naturally, some of the problems that its profession faces. It points out that many accountants will recommend a corporate structure to a client, provide them with an off-the-shelf company for that purpose and then go on to carry out the necessary company secretarial services.
Without clarification of the legislation, it would appear that a professional accountant who advises her client to incorporate in that way is “promoting” the use of companies under paragraph (d). If she provides an off-the-shelf company for that purpose, she is “facilitating” the use of companies under that paragraph. However, as the Institute of Chartered Accountants points out, those activities are an incidental part of a professional accountant’s business of providing an all-round service to the client.
Considerable concern has been expressed about the wide scope of the concept of “promoting” in paragraph (d). If accountants provide services relating to company structures, will advertising those services automatically bring them within the scope of paragraph (d)? Arguably, promoting services relating to setting up companies is promoting the use of those service companies, which could pull them into the scope of the MSC provisions. Any clarification the Minister can give on what “promotion” means and how it will operate in practice would be very welcome.
Subsection (2) of proposed new section 61B introduces a second concept: influencing. The problems in this area are compounded by newsection 61B(2), with its broad concept of involvement with a company. It is focused around the concept of “influence”, yet any professional adviser could be expected to influence their client. People do not go to professional advisers and pay them large fees unless they are considering acting on their advice. Advice and influence are inextricably linked. In particular, many advisers will give clients advice on the best way to make payments. That could bring them within new subsection (2)(c). Surely it is not worth engaging an accountant unless they have at least some influence over the company’s finances or activities. That seems to bring them within the scope of new subsection (2)(d).
The solicitors Blake Lapthorn Tarlow Lyons, advising members of the Association of Technology Staffing Companies, commented on the influence tests:
“Note that it is enough for any one of these (still rather sweeping and hard to interpret) tests to be satisfied.
They do not all have to be satisfied.
Clearly this captures many so called Personal Service Companies who thought that they would be outside the new legislation...The test can be satisfied by the fact of the MSC provider receiving ongoing payments linked to the contractor’s ongoing services, or ‘influence’ over how payments are made or activities carried out.
Therefore it is intended that the only types of PSC who are outside the new regime are ones who genuinely do not use third party assistance to setup or operate or manage their PSC.”
There is at least a risk that the concept of influence could be so broad as to cover insurance companies. By way of illustration, selling insurance to small service companies, for example to cover professional risk, certainly facilitates the use of such companies, which could pass the test set out in paragraph (d) of proposed new section 61B. However, an insurance company that sells such policies to contractors may lay down particular rules and working practices to mitigate risk. Does that mean that the insurance company is “influencing” within the meaning of subsection (2)(b)? There is therefore a danger that it could become liable for the tax debts of the companies it insures. As an insurance company, there is no way it could get the protection of subsection (3), because it cannot be described as offering services relating to accounting or legal services.
Similar problems occur for company formation agents. A core part of their business is setting up companies. Again, their services facilitate the use of companies that provide the services of individuals. It seems that the legislation is not intended to bite in that way. It is not intended to hit ordinary accountants, insurers or company formation agents who just happen to be providing services to small service companies as part of their business.
HMRC seems to have indicated that the target of the legislation is those who set up companies to provide the services of individuals as a discernable and core part, not an incidental or occasional part, of their business. Amendment No. 40 translates that informal indication into the wording of the legislation. Proposed new section 61B(1)(d) would catch only those whose sole or main business is providing or facilitating the use of companies through which to provide the services of individuals. It is these specialists that HMRC seems to be concerned about. The Opposition believe that amendments Nos. 40 and 41 would greatly assist in targeting those providers, while leaving other advisers outside the scope of the legislation.
HMRC has also indicated that the average accountant, company secretary, or formation agent would not be caught by the legislation, because they are not sufficiently involved with the company, even if they have set it up and run its books and statutory returns. It seems to want to focus on someone who takes over all the activities of the company, so that its ostensible proprietor has no meaningful involvement. Why not make this clearer in the legislation? The situation the Government seem to want to get at is where the company is essentially the creature of the scheme provider. In seeking to draw a distinction between what they describe as “personal service companies” and “managed service companies”, they seem to be concerned about a situation where the worker does not really have any involvement with the company at all and the company is the emanation of the scheme provider and not a genuine going concern.
Amendment No. 41 would give real substance to that interpretation by stating that companies would be caught in the definition of an MSC provider only if they are regularly involved in almost all aspects of the way the company works. Situations where the company is a genuine going concern and the worker has merely decided to outsource an aspect of running it, are less likely to be hit if the Committee were prepared to accept amendment No. 41.
It is not enough for HMRC to issue guidelines which seek to remove and mitigate some of the risks, which I have just outlined, for both contractors and their professional advisers. Guidance does not give enough certainty. Firms under risk of falling within the MSC provisions are under significant financial and legal risk to the last penny of their personal wealth. They are likely to have to make significant provision for litigation risk, and there are indications that the risk may be uninsurable. Guidance cannot be litigated in court, so there will be no clarification through legal proceedings. As the Institute of Chartered Accountants of England and Wales has pointed out:
“There is no substitute for having a legal definition.”
Clarification of what this provision means is needed now and not in two or three years’ time, when a case may have made its way through the courts.
I turn now to the closely linked issue of the safe harbour for professional advisers in subsection (3), because the Minister will no doubt tell me that that sorts out all the problems. If amendments Nos. 40 and 41 were adopted to rein in the scope of paragraph (d), most of the problems in relation to professional advisers would fall away and the scope of the safe harbour in subsection (3) would become much less important. However, amendments Nos. 45 and 46 seek further clarification on the safe harbour for professionals and the meaning of
“providing legal or accountancy services in a professional capacity.”
 Amendment No. 45 would broaden the range of professionals who could use the safe harbour, while retaining the focus on services provided in a professional capacity, such as through a practice. Amendment No. 46 would set out some of the services that will not trigger problems with the MSC legislation. Given that the real difficulty in finding a general formulation that covers the wrongdoers but leaves the innocent adviser outside the framework, setting out a non-exhaustive list of services could be one of the simplest and most effective ways to give the clarity and certainty that we so badly need here. It would give critically important assurance and guidance to those who want to comply with the legislation.
Proposed new subsection (3)(b) would also give the Treasury power to set out in secondary legislation further examples of services that professionals could safely provide without incurring any risk of the MSC legislation. Parliament would also have the chance to keep a close eye on how the legislation is working in practice when the secondary legislation came to it for scrutiny.
The simple question for the Committee to consider is what types of services can accountants, lawyers and other professionals continue to offer to small service companies without losing the protection of the safe harbour set out in subsection (3). There seem to be at least three possible approaches. First, a narrow one, which says that a safe harbour covers only basic, traditional accounting services and legal services, such as bookkeeping. Secondly, there is a wider definition that could cover any services ordinarily provided by accountants. The third approach would cover accountancy services ordinarily provided in the course of an accountancy business.
We need much greater clarification on services, such as invoicing and routine tax advice, company secretarial services and IR35 compliance checking, and on which side of the divide they fall. Accountants frequently perform many of those services, so a wide interpretation would not cause a problem. However, if a more restrictive interpretation is correct, setting up companies and company secretarial services might fall outside the safe harbour and leave the accountant at risk of liability.

Stewart Hosie: The hon. Lady is making a good case, but she seems to be narrowly focusing on accountancy in general and not on secretarial services. In the case of many contractors, the agents whom they instruct may well advise them on specialist training courses before, for example, taking an offshore North sea job. They could be advised on accommodation, if they were going to take a job in engineering or a contract job in the middle east. Those are perfectly legitimate things to do in the early stages of acquiring a contract, so should we not agree that the scope of the exemptions must be as wide as possible rather than using the narrow definition for accountancy?

Theresa Villiers: If I understand it correctly, the hon. Gentleman is concerned about the position of employment agencies and staffing companies, which I shall come to in due course. He is absolutely right to say that it is not only accountants and lawyers under consideration here. We must ensure that we get clarity from all the relevant parties, or contractors are going to find life very difficult—their costs will increase and the flexibility of the UK labour market will be damaged as a result.
I have a series of questions for the Minister about what is meant by “in a professional capacity” in subsection (3). First, is it the nature of the services provided that determines whether someone is an MSC provider, or is the question determined by the qualification of the professional status of the person providing the service? If someone is providing services “in a professional capacity”, do they fall outside the MSC provider definition, regardless of what services that they perform? Is it possible for anyone who is not part of a regulated profession to use the subsection (3) safe harbour? Do people need a current practice certificate in that profession to use the safe harbour? Does one need to be part of a traditional professional practice? What about accountants and other tax professionals, who are not registered but who are instead employed in-house? And to what extent can service providers outside the remit of the traditional professional set-up use the safe harbour?
That brings me to a series of questions about accounting service companies, which have emerged in recent years to offer companies cheap, commoditised services, which were previously offered only by accountants. Does the Minister envisage that any accounting service companies would be able under any circumstances to use the carve-out in subsection (3)? Some of them seem to think that they can carry on almost as normal, if they have an accountant on their books. Does an accounting service company have to be owned by qualified professionals with current practising certificates to use the safe harbour?
Clearly there are players in the accounting services sector that the Government want to shut down. HMRC has some justified concerns in this area, but my concern is that there is no evidence that all accounting services are somehow dodgy. Do the Government envisage that any of those companies will be able to survive under the new framework? Do they want to shut them all down? If so, a slightly unfortunate side effect of the legislation seems to be that freelancers would be completely barred from using specialist providers to manage their company affairs and would be restricted only to using the more traditional accountants, who have a more broadly based area of work. I would be interested to hear whether there will still be room for cheaper and more commoditised, factory-style services.
 As partly adverted to in the intervention by the hon. Member for Dundee, East, in focusing in people who hold legal or accounting qualifications, subsection (3) misses some of the important problems caused by schedule 3—solving a problem for lawyers and accountants does not solve the problem with schedule 3. For instance, the subsection (3) safe harbour does not seem to take into account how many professionals hold qualifications other than accountancy and legal qualifications. Company formation agents have been mentioned, and other examples include those holding qualifications relating to company secretarial services or to tax, such as those from the Association of Taxation Technicians or the Chartered Institute of Taxation.

Adam Afriyie: Should mention also be made of software manufacturers, which write software that performs such functions without the intervention of an adviser?

Theresa Villiers: My hon. Friend makes a good point. Many different sectors are affected by the changes, but my concern is particularly about the impact on the IT sector, where contractors and freelancers perform such a valuable role. The nature of the IT sector is that, very often, specific people are wanted to build a specific project. Keeping permanent employees on an ongoing basis is very difficult if the project only lasts a few months. Critical in scrutinising schedule 3 is for the Committee to assess the impact on the IT sector, including the point made by my hon. Friend the Member for Windsor.
 I understand that a number of professional bodies, such as the Institute of Chartered Secretaries and Administrators, is seriously worried that their members may fall into the definition of MSC providers automatically—after all, their business is to set up and run companies. By amending proposed new subsection (3) as I propose in amendment No. 45, those professionals can gain the same protection as accountants and lawyers.
The status of other professionals is also uncertain under the current wording of subsection (3). Other professionals whose activities might conceivably bring them within the scope of “promoting” or “facilitating”, yet seemingly without the protection of the safe harbour, could be management consultants, franchisers who help franchisees run their business, factoring and invoice discounting houses which help follow up unpaid invoices, payroll companies and business advisers. I would be very interested to hear from the Minister how he sees their status under proposed new section 61B.

It being One o’clock,The Chairmanadjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Four o’clock.